By Ben Suter
The District Court’s order dismissing the Complaint is reversed because Plaintiff’s alleged sufficient factual matter to support some, if not all, of their claims for relief.
Evans vs. ZB, N.A., dba California Bank & Trust, No. 18-15094, 2019 U.S. App. LEXIS 18781 (9th Cir., 6/24/19).
The Court reverses the judgment of the District Court, finding that the decision to dismiss the complaint for failure to state a claim upon which relief could be granted was unwarranted, because the Plaintiffs had plausibly pled claims for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and conspiracy to commit fraud.
Plaintiffs brought a class action against Defendant California Bank and Trust (“CB&T”), alleging the bank knowingly assisted a $125 million fraudulent scheme initiated by International Manufacturing Group, Inc. (“IMG”), one of CB&T’s clients. IMG concededly operated a Ponzi scheme under the guise of raising capital to import rubber medical gloves from Asia, for which CB&T issued millions of dollars in loans. IMG siphoned money from later investors to pay back the loans and disperse lulling payments to earlier investors.
CB&T stopped loaning IMG money in 2009, but continued to operate IMG’s deposit accounts and disperse funds. Eventually the scheme collapsed and IMG declared bankruptcy shortly thereafter. Plaintiffs allege that, by 2009, CB&T had discovered IMG was operating a fraud on investors. Rather than terminate the relationship, Plaintiffs allege CB&T helped IMG defraud investors to generate fees, interest, and funds to repay itself. Plaintiffs allege CB&T knew IMG’s entire “wholesale import business” was a sham, because CB&T knew that IMG had virtually no income from its latex glove import business. CB&T moved to dismiss the Complaint for failure to state a claim upon which relief could be granted. The District Court granted the motion, and Plaintiffs appealed. The Court, in a two-to-one decision, reverses the District Court’s dismissal of the case, finding that Plaintiffs had plausibly stated three claims for relief (out of the eight claims originally pled).
First, the Court finds that Plaintiffs state a claim for aiding and abetting fraud, because they alleged sufficient factual matter to support their plausible assertion that CB&T: (a) knew IMG was defrauding investors, and (b) gave substantial assistance to IMG. For example, CB&T alleged that CB&T knew it was being repaid with investor funds (and not revenue from sales of latex gloves), because it traced a multi-million dollar loan repayment to an investor in IMG’s wholesale account. Second, and for the same reasons, the Court finds that Plaintiffs had alleged sufficient facts to state a claim for aiding and abetting IMG’s breach of fiduciary duty. Finally, the Court finds that Plaintiffs had stated a claim for conspiracy to commit fraud, having alleged that CB&T terminated the lending relationship in 2009, but also agreed to keep IMG’s wholesale depository account open for long enough for CB&T to get fully repaid and hide the connection between the Ponzi scheme and repayment from it. Accordingly, the Court reverses the judgment of the District Court and remands the matter for further proceedings.
(SOLA Ref. No. 2019-27-04)
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